The foundation to arbitration – the existence of a dispute between the parties
Introduction
Arbitral tribunals often encounter
jurisdictional challenges. Such jurisdictional disputes usually concern whether
there is a valid arbitration agreement or whether the dispute falls within the
scope of the arbitration agreement. Almost forgotten is another foundation to invoke the jurisdiction of an arbitral tribunal, being
the existence of dispute itself between the parties. The recent case CMB
v Fund & Ors [2023] HKCFI 760 reminds the public of this equally
important pre-condition to arbitration.
Facts
The Plaintiff entered into a co-investment
agreement (the “Agreement”) with the
1st and 2nd Defendants (“D1” and “D2”)
whereby the Plaintiff agreed to invest for a minority stake in a company (the “Company”). The Agreement contains an
arbitration clause which provides that all disputes between the parties arising
out of or related to the Agreement to be settled by arbitration
at the International Chambers of Commerce. In the dealings with the Plaintiff,
D1 was represented by Mr Li Lei (“Mr Li”),
whilst D2 was represented by Mr Xiong Fei (“Mr Xiong”).
In June 2020, the Plaintiff commenced a
High Court action (“HCA”) against Mr
Li, Mr Xiong, Mr Chen Yangyou (controlling shareholder and a director of the
Company) and the 3rd Defendant (“D3”) for fraudulent misrepresentation and conspiracy to defraud.
Notably, D1 and D2 are not named as defendants in the HCA.
D1, D2, D3, Mr Li and Mr Xiong then
commenced an ICC arbitration seeking, among others, the following reliefs:
1. anti-suit
injunctions requiring the Plaintiff to discontinue or abandon the HCA and
restraining the Plaintiff from commencing or pursuing other proceedings relating
to disputes arising out of or relating to the Agreement otherwise than by ICC
arbitration; and
2. declaration that D1, D2, D3, Mr Li and Mr Xiong have no liability to
the Plaintiff with respect to its allegations of fraud, conspiracy and breach
of trustee duties and that such allegations are false.
The Plaintiff challenged
the Arbitrator’s jurisdiction on the grounds that:
1.
The Plaintiff had no contract or
arbitration agreement with D3, Mr Li and/or Mr Xiong.
2.
There was no actual dispute between the
Plaintiff and D1 and D2, the parties to the Agreement.
In March 2022, the
Arbitrator handed down the award (“Award”)
with, among others, the following findings:
1.
The Arbitrator had no jurisdiction to
grant the injunctive reliefs as Mr Li, Mr Xiong and D3 were not parties to the
Agreement.
2.
The Arbitrator had jurisdiction in so far
as D1 and D2 seek declarations of non-liability as regards their own position.
3.
The Arbitrator made a declaration (“Declaration”) that D1 and D2 have no
liability to the Plaintiff with respect to the allegations arising out of the
Agreement that are the subject matter of the HCA and that all such allegations
in so far as they are made against D1 and D2 are false.
The Plaintiff seeks
to set aside the Declaration and the finding that the Arbitrator has
jurisdiction to make the Declaration.
Decision
The Honourable Mimmie Chan J set aside the
Declaration on the grounds that the Arbitrator has no jurisdiction to make the
Declaration. Her Ladyship’s reasoning are as follows:
1.
An arbitral tribunal has to rely on the
existence and scope of the arbitration agreement to exercise its jurisdiction
and powers.
2.
For there to be a valid arbitration
process and a valid award, there has to be a formulated dispute.
3.
The right of the parties to put an
arbitration agreement into effect does not arise until and unless there is a
dispute between the parties to the agreement.
4.
No claim had been made by the Plaintiff against
D1 and D2 in the HCA.
5.
If there was no dispute to begin with
between the Plaintiff, D1 and D2, there was no subject matter in respect of
which any remedy or relief could be considered by the Arbitrator for granting
to D1 and D2.
6.
The fact that there is a legitimate
interest for D1 and D2 to seek the Declaration cannot by itself invoke the
jurisdiction of the Arbitration when there is no dispute between the Plaintiff,
D1 and D2.
7.
The Arbitrator had confused the question
of whether he had jurisdiction in the arbitration to deal with the claims made
in the arbitration with the question of whether he should exercise his power to
grant the remedies sought in the arbitration.
Her Ladyship further ordered indemnity costs payable by D1 and D2 to the
Plaintiff.
Takeaway
This case serves as a reminder that identifying the dispute and parties
in dispute is as important as other preliminary and substantive issues in an arbitration.
Failure to do so may lead to proceedings commenced at the wrong forum and
substantial cost consequences.
For enquiries,
please feel free to contact us at: |
E: arbitration@onc.hk T:
(852) 2810 1212 19th Floor, Three Exchange Square, 8 Connaught
Place, Central, Hong Kong |
Important: The law and procedure on
this subject are very specialised and
complicated. This article is just a very general outline for reference and
cannot be relied upon as legal advice in any individual case. If any advice
or assistance is needed, please contact our solicitors. |
Published by ONC Lawyers © 2023 |